When creditors pursue wage garnishment, your hard-earned money could be taken to pay off debts leaving you without a significant portion of your paycheck. Read our blog for information regarding wage garnishment, how much creditors are allowed to take, and what to do when they go too far.
What Is Wage Garnishment?
Wage garnishment is a legal procedure used by creditors to collect certain debts. Typically, the process of wage garnishment is triggered when the person who owes the debt fails to pay off their debt and/or fails to respond to collection notices.
Once the creditor has grounds to pursue wage garnishment, they will contact the employer to coordinate garnishing wages from future paychecks. The employer may withhold the portion of wages and send it directly to the creditor.
However, Title III of the Consumer Credit Protection Act (CCPA) prohibits an employer from terminating an employee facing wage garnishment regardless of the extent to which the creditor may attempt to collect. In other words, it is considered discrimination to fire or separate an employee because of their financial status.
Additionally, employers cannot allow creditors to garnish the entirety of an employee’s wages or an unreasonable and unequal amount per pay period. Title III protects individuals by limiting the amount creditors may garnish and the extent to which employers comply or retaliate.
Creditors cannot garnish assets from all an employee’s assets. The key term to note when understanding wage garnishment is earnings. Earnings are defined as payments received in lump sums and may include:
- Profit sharing
- Holiday overtime
- Severance pay
- Back pay from settlements
- Merit increases
- Workers’ compensation
- Attendance, safety, and cash awards
- Termination pay
If the payment is in exchange for personal services, it may not be subject to wage garnishment. Otherwise, payment for official employment responsibilities may be subject to garnishment.
The amount of pay subject to garnishment depends on the employee’s disposable income which is the amount left after legal deductions are made. Legal deductions include taxes, social security, benefits, and retirement.
On average, the maximum amount to be taken from an employee per pay period cannot exceed 25% of the total earnings, or the amount by which the employee’s disposable earnings are greater than 30 times the federal minimum wage which is $7.25 per hour.
In other words, the creditor may not garnish more than 25% of the employee’s disposable income, or the amount of earnings above 30 times the federal minimum wage.
In addition to protecting employees from total garnishment Title III also puts additional limits on the number of wages to be garnished for child support and alimony. In some cases, if a person has a court order to pay child support and they fail to do so, up to 50% of their disposable income can be garnished if they support a current spouse and child and 60% if they are unmarried.
It is illegal to garnish the entirety of an employee’s wages. Only the amount of disposable income allowed under Title III can be garnished. Depending on a person’s income, they may lose up to 25% of their total disposable income, or 50% for child and spousal support.